Measuring Up for Diversity: Corporations and suppliers alike must be flexible
When U.S. corporations created supplier diversity programs in the early 1990s, their biggest battle, they said at the time, was finding qualified minority- and women-owned enterprises (MWBEs) with which to do business. Since then, attitudes toward supplier diversity have changed, albeit slowly. “Corporations no longer consider a supplier diversity program as something created on the social level; the business case for such programs has been established,” says Lynda Ireland, president and CEO of the New York & New Jersey Supplier Development Council, which has 210 corporate and 1,500 certified MWBE members. The group is a part of the National Minority Supplier Development Council.
In the New York-New Jersey region, Ireland says, corporations spent $6.8 billion with certified MWBEs in 2005, which accounted for 45 percent of their purchasing dollars collectively. John F. Robinson, president and CEO, of the National Minority Business Council Inc. in New York notes that corporate partners, such as Bank of America, Morgan Stanley and Pfizer have strong supplier diversity programs that spend an appreciable amount of money with MWBEs.
According to the U.S. Census Bureau, Black-owned firms in the United States generated $88.8 billion in revenue between 1997 and 2002. New York had the largest number of Black-owned firms, 129,324, and they generated nearly $7.5 million in revenue alone. The largest concentration of these firms was in New York City (98,076 firms).
For the past 10 years, the N.A.A.C.P. has used its own bellwether, the Economic Reciprocity Initiative, to assess corporations’ supplier diversity programs and their commitment to diversity in general. The initiative effectively was a way to inform Black consumers whether or not some of the billions of dollars they spent annually with major corporations were being returned to the Black community in the form of investment. The N.A.A.C.P. created an ERI Report Card to rate major corporations in five industries—lodging, telecommunications, financial services (banks), general merchandising (retail stores) and the automotive industry. Each year, the corporations are rated according to their diversity efforts in employment, marketing-advertising, vendor relationships, community service-reinvestment and charitable giving.
“The ERI Report Card has been extremely effective in the goal of increasing corporate economic reciprocity with the African-American community,” explains Christine Bischoff, the N.A.A.C.P.’s national economic empowerment policy manager in Washington, D.C. “It has also been extremely effective in providing information to N.A.A.C.P. members and partnering organizations so they can be more informed consumers when deciding which companies to support in each of the five industries,” she says.
Under the ERI assessment, neither the longevity of a company’s supplier diversity program nor the amount of dollars spent with MWBEs is a guarantee of a high performance rating. What counts, N.A.A.C.P. officials say, is the company’s overall performance in the assessment categories. In the 2006 Report Card, for example, SunTrust Bank, which established a formal supplier diversity program in 1994, scored an overall B, one of the highest ratings in the report. At the same time, J.C. Penney, which created its supplier diversity program in 1972, scored an overall D+. Sun Trust’s spending with MWBEs rose from $1.5 million in the first year of its supplier diversity program to $82.5 million in 2003, while J.C. Penney’s grew from $5 million in the first year of its program to $673 million in 2002.
In another example, General Motors, which established its supplier diversity program in 1968, spent $5.6 billion in 2005 with minority suppliers but scored only a C on the ERI Report Card. Company officials defended their MWBE record. “We are proud of the accomplishments of our supplier diversity program, which has brought greater capability and economic opportunities to minority business enterprises for nearly 40 years and spent more than $60 billion with minority suppliers,” says Deborah Silverman, communications manager at GM Global Purchasing and Supply Chain. “Is there room for improvement? Yes. And we are committed to continuously improving the program. But we feel a sense of accomplishment along with our minority supply base for the progress we have made.”
GM currently has 300 certified minority vendors and even requires its Tier 1, or prime, suppliers to purchase a minimum of 8 percent of what they supply to GM from certified minority suppliers.
No matter how committed to diversity they may be, corporations are subject to market forces, which sometimes means they may be forced to tighten spending to remain competitive, corporate executives note. When that happens, vendors must be able to adjust accordingly, they say. Today’s highly competitive corporate environment has led to trends that affect supply diversity. Of those trends, outsourcing probably has had the greatest impact.
Over the last several years, major corporations have turned over, or outsourced, so-called back-office operations to call-center contractors in places like India and the Philippines, taking advantage of those countries’ technologically savvy worker base and cheap labor but cutting out U.S. vendors who normally supplied those services. But a growing backlash in the United States is forcing corporations to revisit the practice.
“There is a phenomenon called ‘call-center rage,’ where Americans are cursing out [the representatives at these] foreign call centers. This is leading to lower levels of customer loyalty and consequently some corporations are bringing these call centers back to the U.S.,” explains, Douglas Freeman, CEO of Virtcom Consulting, a global diversity management firm in New York City.
Even so, the IT and applications outsourcing market is now worth nearly $120 billion per year. Minority business owners who wish to work with multinational companies will have to “scale up and be global,” Freeman says. “Don’t view it as outsourcing. [The corporations] are telling you to find partners not only domestically but internationally,” he says.
The National Minority Supplier Development Council has launched a “Global-Link” program to encourage the development of nongovernmental organizations in Brazil, Canada and Europe that can connect historically excluded businesses in those countries with corporate buyers. Through these NGOs, the Council’s minority vendor members can form partnerships globally. The National Minority Business Council offers a similar program through its International Trade Program, which hosts business exchanges for small and minority entrepreneurs who wish to establish business relationships with partners in the Caribbean, Central America, Europe, Africa and Asia.
In the same vein, corporations are taking their domestic supplier development model to their global operations. “There are a fair number of companies that try to target supplier diversity outside of their local or domestic environment. They don’t do the whole globe; they target a few key countries,” says Freeman, whose firm will host its third annual World Diversity Leadership Summit in June at the United Nations. The focus of the summit is to help CEOs create global diversity strategies in Asia, Africa, Latin America and Europe. The key to developing a global diversity strategy is to target countries whose legislatures can move forward on good diversity legislative policies and a diversity framework, Freeman says. “It is a good first step to building a platform,” he says, noting that the trend is happening all over Europe. “Corporations are partnering with the EU commission on antidiscrimination laws affecting what they refer to as ‘the six strands’: gender, ethnic minorities or immigrants, religion, and ageism, the disabled and sexual orientation,” he says.
Shrinking Supplier Base
One of the biggest challenges to MWBEs is the corporate practice of shrinking the supplier base to save money. “The reality is corporations are reducing the number of vendors they work with in order to get better pricing,” says Freeman. Vendors must have the internal infrastructure and capability to become suppliers of choice, he says.
Bridgewater Interiors L.L.C., an auto interiors design firm, was created as a joint venture between majority-owned Johnson Controls Inc. and minority-owned Epsilon L.L.C. to become a supplier of choice. In 2004, Bridgewater obtained a $500 million contract, the largest ever awarded a minority-owned company, to produce automotive seat systems for Ford Motor Co.’s F-150 pickup truck, Expedition and Lincoln Navigator SUVs. The following year, Bridgewater landed a $400 million contract with the Chrysler Group to supply the overhead systems for Chrysler’s 2005 Jeep Grand Cherokee line.
Such strategic alliances are necessary if minority suppliers are to land corporate contracts, Ireland says. “MWBEs have to be competent, capable and competitive,” she says.